Optimizing the Supply Chain Performance at Ericsson AB : A Study of Lead Time Reduction and Service Level Improvement

University essay from Linköpings universitet/Logistik- och kvalitetsutveckling; Linköpings universitet/Logistik- och kvalitetsutveckling

Abstract: Ericsson has recently experienced difficulties to meet the customer demand, which has led to lost market shares. This is mainly due to the long and unpredictable lead times within their supply chains. Therefore, Ericsson seeks to increase their ability to meet the customer demand by reducing the customer order lead time. A shorter lead time would imply a greater responsiveness and improved service level towards the customers. A directive from the company was to base the study on the supply chain for the customer Algeria Telecom Mobile. The purpose of the study is to give recommendations for improvements that reduce the total lead time in a supply chain perspective in order to improve the customer service level.  To be able to fulfill the purpose, four objectives were distinguished and supported with existing frameworks for analyzing supply chains. The first step was to create a current state map, which was achieved by conducting 24 interviews with people working within the supply chain. The second step was to identify potentials for lead time reduction. This was done by categorizing the supply chain parts and the problems that were gathered during the current state mapping into meaningful groups, and thereafter prioritize the categories with the greatest potential. The third step was to generate alternative solutions by conducting a second literature review based on the potentials that was identified during the prior step. The general solutions were later modified in order to fit the current supply chain. It resulted in eight Ericsson specific solutions. The fourth step was to evaluate these solutions in combination, which led to a recommended combination of solutions that provided the greatest lead time reduction. Also the requirements for implementing these solutions were presented in this step.  The recommendation for Ericsson is to rearrange their current supply chain for the studied customer and use two different supply chains; the Regional supply chain and the Alternative supply chain. The two arrangements will both be based on the implementation of a supply hub, which implies a movement of the customer order decoupling point closer to the customer. The Regional supply chain will cover the main flow and be used when the customer orders products from a product portfolio that has been agreed within the region. The Alternative supply chain will act as a complement and cover the flow of products outside the regional product portfolio.   The estimated customer order lead time for the Regional supply chain is 17 days, which is a reduction of 80 % in the normal case for the studied supply chain. The lead time for the Alternative supply chain is more difficult to estimate precisely, but it will be reduced in comparison with the current situation. Moreover, the service level towards the customer will be increased for both the Regional and the Alternative supply chain. To summarize the recommendations that are forwarded to Ericsson, they are listed below: 

  • Implement a regional supply hub 
  • Agree on a regional product portfolio 
  • Implement time slots for inbound flows 
  • Use BPO as a payment method instead of Letter of Credit 
  • Use a CIP, DAP or DAT Incoterm 
  • Implement a product configurator and let the customer place orders on commercial descriptions or a solution id. 
  • Integrate processes and activities throughout the supply chain and establish a greater information exchange.

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